conference call: china beauty - skin in the game · source: euromonitor, morgan stanley research ....

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China Beauty – Skin in the Game on 9/12

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China Beauty – Skin in the Game (here)

September 12th, 2019

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China Beauty: Skin in the Game

September 12th

2

1. Demand Sustainability Greater than the Market Perceives Based on Consumer Intentions

2. Diverse Sources of Increased Spending Provide Sustainability Comfort

3. Breadth of Demand by Consumer Groups is Encouraging

4. Premiumization Trends Remain Strong

5. Brand Fragmentation is Reversing

6. Macroeconomic Risk Appears Manageable

Proprietary AlphaWise China Beauty Industry Survey Takeaways

Between April and May 2019, AlphaWise conducted the third edition of the China Beauty Industry Survey among 1,547 beauty product users from Tier 1-3 cities using online methodology.

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September 12th

3

Key Point #1: Demand Sustainability Greater than the Market Perceives




September 12th

4

China Beauty Sales Growth Has Rapidly Accelerated

Source: Euromonitor, Morgan Stanley Research

16%

13% 13%14%

10% 10%9%

7%6%

12%

15%

23%

18%16%

19%

12% 12%9%

8%10%

26%

29%

14%

11% 11%13%

10% 9%8%

7%

5%7%

8%

0%

5%

10%

15%

20%

25%

30%

35%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

China Beauty Euromonitor Retail Sales Growth

Overall Premium Mass




September 12th

5

Proportion of Consumers Expecting to Spend More on Beauty in the NTM is Comparable to LTM

Source: AlphaWise, Morgan Stanley Research

68%62% 62%

52%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Skin Care Today vs.L12M

Skin Care N12M Make-Up Today vs.L12M

Make-Up N12M

% of Respondents Spending More on Beauty Products




September 12th

6

Half of Consumers Intend to Increase Travel Spend in the Next Year


53%

34%

11%

0%

10%

20%

30%

40%

50%

60%

Spending more Spending about thesame

Spending less

N12M Travel Spending Expectations




September 12th

7

Key Point #2: Diverse Sources of Increased Spending Provide Sustainability Comfort

1. Expanded Beauty Routines

2. Engagement of Younger Consumers

3. Social Media and E-Commerce Proliferation

4. Increasing Number of Beauty Consumers




September 12th

8

Expanded Routines Were a Major Reason for Increased Beauty Spend


48

44

40

36

29

51

46

33

34

33

34

45

41

36

34

I added steps in my routine so I bought moreproducts in the category

There are more new brands or products inthe market that I wanted to try

I bought more expensive brands for thesame items I used

I have more money to spend

There are more brands or products availablevia online channels

Reason For Higher Category Spending Vs. 12 Months Ago

Skin care Make-up Fragrances




September 12th

9

Social Media Has Encouraged Premiumization and Greater Spending on Beauty Products


76%

74%

73%

70%

66%

I have begun to try new or niche brandssince using social media

I have bought a greater number of cosmeticproducts since using social media

I have bought more expensive cosmeticproducts since using social media

Product reviews or beauty tips on socialmedia are most trustworthy

Social media will be the biggest influenceron my purchase decision around cosmetic

products in near future

Social Media Usage On Beauty Product Purchases (Selected "Strongly Agree" or "Somewhat Agree")




September 12th

10

89% of Respondents Recently Purchased Beauty Products Online


31%

69%

89%

2014 2016 2019

% Having Purchased Beauty Products Online In P12M

+3800 bps

+2000 bps




September 12th

11

Online Sales Have Significantly Increased as a Proportion of Total Beauty Sales in China





September 12th

12

Key Point #3: Breadth of Demand by Consumer Groups is Encouraging




September 12th

13

Skin Care Spending Was Strong Across Age Groups, Income Levels, and City Tiers





September 12th

14

Demand Was Also Strong Across Makeup





September 12th

15

Key Point #4: Premiumization Trends Remain Strong



16


September 12th

Premiumization to Continue

• The sustainability of premiumization is a key investor debate, with China premium beauty share rapidly expanding from

23% a decade ago to 36% in 2018.

• With major prestige brands’ embracing online channel, improving brand recognition as well as consumer reach should

drive further strong growth for premium segment.


A majority of consumers plans to buy similar or

more expensive brands going forward…


Premium mix to increase continuously

0%

10%

20%

30%

40%

50%

60%

2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E

China onshore mass

China onshore premium

Outbound cosmetics spending

(% of total beauty demand)

77%80% 80% 80%

Bought moreexpensive or similarlevel brands in the

past 12 months

Will buy moreexpensive or similarlevel brands in the

next 12 months

Bought moreexpensive or similarlevel brands in the

past 12 months

Will buy moreexpensive or similarlevel brands in the

next 12 months

Product/Brand Mix over L12M and N12M

Skin Care Make-Up




September 12th

17

Consumers Expressed Interest in More Premium Products


54

1415

12

14

Skin care Make-up

Net Score (% Buying Expensive Products/Brands minus % Buying Cheaper Products/Brands N12M) 2014 2016 2019




September 12th

18

Large Growth Opportunity in Emerging Markets as PCC Rises, Particularly in Beauty


0

20

40

60

80

100

120

140

160

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000

Per Capita Disposable Income

Per Capita Category Consumption

Total Beauty

Personal Care (ex Oral Care)

Oral Care

Tissue and Hygiene

Home Care

Pet Care

India

Singapore

USAUK

Germany

RussiaChina

Brazil




September 12th

19

Key Point #5: Brand Fragmentation is Reversing



20


September 12th

Larger Companies Gaining Market Share

• Perhaps counterintuitively, larger companies are winning in China beauty, gaining share vs. our 2016 survey and a

reversal from our survey work in the prior few years. We believe that this is a function of the digital flywheel driving

desirability.

2.5%

1.6%1.3% 1.3%

0.9%0.7% 0.6%

0.3%

-0.4% -0.5%-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

L'Oréal EstéeLauder

LVMH P&G Proya Shiseido LGHH KOSE ShanghaiJahwa

Amorepacific

Market share change in China onshore : 2018 vs. 2021E

Source: Company Data, Morgan Stanley Research




September 12th

21

Trend of Brand Fragmentation Among Top Players is Reversing from Prior Surveys


Olay, 15

Estee Lauder, 8 Estee Lauder, 9

Inoherb, 11

L'Oreal Paris, 6 Olay, 7

L'Oreal Paris 7

Inoherb, 5Shiseido, 6

Estee Lauder, 4

Olay, 5L'Oreal Paris 6

Herborist, 4

Lancome, 5Chando, 5

0

5

10

15

20

25

30

35

40

45

2014 2016 2019

Top 5 Skin Care Product Brands Most Often Used

5th brand

4th brand

3rd brand

2nd brand

Top brand Maybelline, 42

Maybelline, 15Estee Lauder, 10

L'Oreal Paris 14

Lancome, 8Maybelline, 9

Estee Lauder, 5

Estee Lauder, 8Shiseido, 8

Lancome, 4

L'Oreal Paris, 6Lancome, 7

Chanel, 3

Shiseido, 6YSL, 6

0

10

20

30

40

50

60

70

80

2014 2016 2019

Top 5 Make Up Product Brands Most Often Used

5th brand

4th brand

3rd brand

2nd brand

Top brand




September 12th

22

Key Point #6: Macroeconomic Risk Appears Manageable




September 12th

23

Skin Care Is the Most Defensive Discretionary Category


54%

5%

0%

-1%

-2%

-2%

-4%

-4%

-4%

-5%

-7%

-11%

-22%

Skin care

Make-up

Women’s shoes

Home appliances

Fragrances

Going out to eat / Restaurant

Sportswear

Going out to the cinema

IT products

Women’s handbag

Nutritional products

Domestic / overseas travel

New or replacement car

In times of economic uncertainties, which category of spending would be most likely to get cut? (Net: least likely - most likely)




September 12th

Demand Model



25


September 12th

27%

38%35%

60%

83% 85%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2015-2018 2019-21E 2015-2018 2019-21E 2015-2018 2019-21E

China's contribution to global market growth*

China's contribution to global travelretail sales growth

China's contribution to global premiummarket growth

China’s Contribution to Global Beauty Market

Note: China and global beauty market without travel retail sales Source: Euromonitor, Generation Research, Morgan Stanley Research estimates

• China is the largest beauty market and continues to be the key driver of growth for global beauty companies.

90%

75%71% 69%

53%48%

12% 10%

0%

20%

40%

60%

80%

100%

Amorepacific Shiseido LGHH Estée Lauder KOSE L'Oréal P&G LVMH

China outbound

China onshore

Sales Growth Contribution from Chinese Consumers: 2018 vs 2021E

Source: Company Data, Morgan Stanley Research estimates



26


September 12th

Drivers of China Beauty Demand

• Demand for beauty remains strong and enduring and diverse sources of increased spending provides forward visibility.

Beauty routines have expanded

Younger consumers drive demand

Social media and e-commerce increase accessibility

Increasing number of beauty consumers


Major reasons for increased beauty spend


Skin care is the most defensive category

54

5

0

-1

-2

-2

-4

-4

-4

-5

-7

-11

-22

Skin care

Make-up

Women’s shoes

Home appliances

Fragrances

Going out to eat / Restaurant

Sportswear

Going out to the cinema

IT products

Women’s handbag

Nutritional products

Domestic / overseas travel

New or replacement car

In times of economic uncertainties, wihch category of spending would be most likely to get cut? (Net: least likely-most likely)48

44

40

36

29

51

46

33

34

33

I added steps in my routine so I boughtmore products in the category

There are more new brands or productsin the market that I wanted to try

I bought more expensive brands for thesame items I used

I have more money to spend

There are more brands or productsavailable via online channels

Reason For Higher Category Spending Vs. 12 Months Ago

Skin care Make-up



27


September 12th

China Beauty Demand Forecast

• Our demand model forecasts a 13% CAGR in the next three years in Chinese consumers' beauty spending based on: 1)

Chinese spending forecasts, using both domestic and overseas demand; 2) important trends in the sector; 3) company-

level market share analysis; and 4) the results of our AlphaWise survey.

Source: Euromonitor, CEIC, Morgan Stanley Research estimates

22 21 22 25 26 28 30 32 34

8 8 10

14 17

21 25

28 32

10 12 15

19

22

24

26

27

29

-

10

20

30

40

50

60

70

80

90

100

2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E

Outbound cosmeticsspending

China onshore premium

China onshore mass

(USD bn)

2015-18 CAGR 27%

2018-21 CAGR 12%

2015-18 CAGR 22%

2018-21E CAGR 23%

2015-18 CAGR 7%

2018-21E CAGR 7%



28


September 12th

China Beauty Demand: Key Assumptions

China Onshore Premium

23% CAGR over 2018-21e (vs. 22% over 2015-18)

China Onshore Mass

7% CAGR over 2018-21e (vs. 7% CAGR over 2015-18)

Outbound Beauty Spending

12% CAGR over 2018-21e (vs. 27% CAGR over 2015-18)

China Onshore Total 13% CAGR over 2018-21e

(vs. 11% over 2015-18)

Key Drivers/Assumptions

•Target customer forecast based on income bracket growth, demographics change, and penetration ratio (up 30%)

•Average spending per target customers (12% CAGR)


•Weighted average income growth on tiered cities (7% CAGR)

•Growth multiplier: skin care (0.95 on average)

•Growth multiplier: color (1.26 on average)


•Chinese outbound traffic forecast (11% CAGR)

•The Chinese Government’s policy direction set for shifting overseas spending toward in-China (onshore) consumption.

•Reseller’s (daigous) demand could shift to onshore consumption (especially premium segment). Thus, we expect outbound spending growth to slow down.

Total Beauty Demand

13% CAGR over 2018-21e (vs. 16% over 2015-18)




September 12th

Stock Takeaways

1. Global US/European origin prestige beauty companies (Estee Lauder, LVMH, and L'Oreal)

are poised to benefit in China, given their skew toward premium products, travel retail and e-

commerce channels, and their brand equity.

2. There is plenty of channel growth opportunity and bright spots within the mass category,

albeit lower than premium, which the market is not fully pricing in, and which should benefit

players like Proya.

3) Tailwinds for Korean-heritage products are dissipating, with brand origin preferences shifting

toward Japanese and European brands.

Preferred Plays in Order

LG Household and Health Care (OW)

Proya Cosmetics (OW)

Estee Lauder (OW)

LVMH (OW)

Procter & Gamble (OW)

Shiseido (EW)

L'Oreal (EW)

Kose (EW)

Kao (EW)

Amorepacific (UW)




September 12th

Stock Takeaways for Beauty Companies Across the Globe:

Multinationals are Well-Positioned




September 12th

31

Large Global Multinationals Ranked Highly in Brand Loyalty in Skin Care…


60%57%

46% 45%41%

50%

0%

10%

20%

30%

40%

50%

60%

70%

EL L'Oreal Shiseido LVMH Amorepacific Other Top 20

Weighted Average of Current Users Planning to Repurchase Skin Care Products in the N12M (Top 20 Brands)

63%58% 57% 57% 56%

51%46% 45% 45%

40% 38%

24%

50%

0%

10%

20%

30%

40%

50%

60%

70%

Est

ee L

auder

Lanco

me

L'O

real P

aris

Kie

hl's

SH

ISE

IDO

Clin

ique

Aupre

s

Laneig

e

Dio

r

Innis

free

Sulw

haso

o

AN

ES

SA

Oth

er

Top 2

0

Current Users Planning to Repurchase Skin Care Products in the N12M (Top 20 Brands)

ELL'OrealShiseidoAmorepacificLVMH




September 12th

32

…As Well as in Make-Up


59%54% 54%

50%

39%

49%

0%

10%

20%

30%

40%

50%

60%

70%

EL Shiseido L'Oreal LVMH Amorepacific Other Top 20

Weighted Average of Current Users Planning to Repurchase Make-Up Products in the N12M (Top 20 Brands)

68%62%

57%56%55%54%53%51%51%48%46%44%43%

40%34%34%34%

49%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Este

e L

auder

Lancom

e

Dio

r

YS

L

Sulw

hasoo

SH

ISE

IDO

Maybelli

ne

M.A

.C.

L’O

real P

aris

Clin

ique

Shu U

em

ura

GIV

EN

CH

Y

AR

MA

NI

Guerlain

Laneig

e

Etu

de H

ouse

Innis

free

Oth

er

Top

20

Current Users Planning to Repurchase Skin Care Products in the N12M (Top 20 Brands)

ELL'OrealShiseidoAmorepacificLVMH




September 12th

33

Multinationals Have A Premium Skew…

Source: AlphaWise, Euromonitor, Morgan Stanley Research

2018 Premium Mass

LVMH 100% -

EL 100% -

LGHH 73% 27%

L'Oreal 49% 51%

Shiseido 43% 57%

Amorepacific 36% 64%

PG 34% 66%

Kose 13% 87%

Kao 10% 90%

Proya - 100%

62%52%

35%41%

3% 7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Skin Care Make-Up

N12M Spending Intentions on Beauty Products

Will Decrease Will Stay the Same Will Increase

*In reality the premium mix is likely underestimated here for names

like PG, as Euromonitor does not include travel retail sales




September 12th

34

…Have Higher N12M Use Expectations in Skin Care, Which is a More Significant Category Than Make-Up…


1.60

1.38 1.35 1.331.27

1.12

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

LVMH L'Oreal Shiseido EL Amorepacific Other Top 20

Top 20 Currently Used Skin Care Brands and Expected N12M Use Ratio Ratio (Likely to Use / Currently Using)

49% Skin Care

63% Skin Care86% Skin Care 73% Skin Care 75% Skin Care

97%

84%

Face care Make-up

Categories Purchased in Past 6 Months




September 12th

35

…And Benefit From Favorable Brand Origins


24

18

24

17 16

28

24

17 1715

Europeanbrands

Japanesebrands

Koreanbrands

Americanbrands

Local Chinesebrands

Most Preferred Brand Origin

2016 201973%

20%

7%

Important Neither Unimportant

Brand Origin On Purchase Decision




September 12th

Asia



37


September 12th

8.6

6.2

4.3

2.7

2.6

2.3

2.1

1.9

1.8

1.4

1.4

1.0

0.9

0.7

0.7

Estee Lauder

SHISEIDO

Lancome

Sulwhasoo

The History of Whoo

SK-II

Kiehl’S

Clinique

Dior

CBP Cle de Peau Beaute

YSL

SEKKISEI

Su:m

GIVENCHY

La Mer

Skin Care Product Brands Most Often Used:

LG Household & Health Care (051900.KS, OW, PT of W1,620,000)

• We believe LGHH is one of the key beneficiaries of the premiumization in the China Beauty market on the back of its

portfolio skew to the premium segment.

• We expect the company's prestige brand sales to show a 32% CAGR 2019-21e, and its share in that segment to increase

from its current 3.4% to 4.3% in 2021e.

• Current valuation of LGHH at 2020e P/E 22x looks very attractive, below 1 standard deviation of historical average vs. its

14% EPS CAGR over the next three years.


LGHH prestige brands ranked well in skin care LGHH: NTM P/E valuation looks attractive

15

20

25

30

35

2012 2013 2014 2015 2016 2017 2018 2019

12M Fwd P/E +1 STD

+2 STD -1 STD

-2 STD Average

(x)

Source: WiseFN, Morgan Stanley Research



38


September 12th

Amorepacific (090430.KS, UW, PT of W120,000)

• We believe Amorepacific is poorly positioned within mass brands and low premium exposure.

• Ample downside risk in consensus earnings (MSe 11-20% below consensus for 2019-20e) could weigh on valuations near

term.

• While its prestige brand, Sulwhasoo, appears to be underutilized in China, its mass brands show weakening momentum,

competing with local brands main mass brands.


AP’s prestige mix is too low Major AP’s brands’ overall impression weakened

3%

0%

-2%

-2%

-2%

-3%

-4%

-5%

-5%

-8%

-9%

-11%

-15%

-15%

-16%

-25%

ANESSA

Vichy

Yue Sai

Etude House

Maybelline

Olay

Aupres

Nivea

Laneige

Pond’s

The Face Shop

Innisfree

Herborist

Maxam

MG

Mamonde

Changes In Brand Impression: 2019 vs. 2016 Survey


13%

16%

20%

24%

27%

29%

0%

5%

10%

15%

20%

25%

30%

35%

-

100

200

300

400

500

600

2017 2018 2019E 2020E 2021E 2022E

China prestige sales

China prestige sales as % of total China(W bn)



39


September 12th

Shiseido (4911.T, EW, PT JPY8,000)

Shiseido brand ranked #1 in brand awareness Perception towards Japanese brands also improved


26

10

26

10

2724

18

24

17 16

28

24

17 1715

Europeanbrands

Japanesebrands

Koreanbrands

Americanbrands

Local Chinesebrands

Most Preferred Brand Origin 2014 2016 20199689

797675

7372

7171

666666656463

62606060

5959595858

565656565555

SHISEIDOEstee Lauder

ChanelLancome

DiorL'Oreal Paris

OlayChando

MaybellineAupres

LaneigePechoinInnisfree

DabaoSulwhasoo

GUCCIKanSProyaSK-II

HerboristCarslan

GIVENCHYYSL

CliniqueNivea

Kiehl’SJohnson & Johnson

ARMANIUnifon

Avon

2019 Survey: Top 30 Brand Awareness

0

10

20

30

40

50

60

70

80

90

100

SHIS

EID

O

Au

pre

s

Cle

de

Pea

u B

eau

te Za

Pu

re &

Mild

AN

ESSA

Do

lce

& G

abb

ana

ISSE

Y M

IYA

KE

ELIX

IER

IPSA

NA

RS

Ura

ra

SEN

KA

MA

QU

ILLA

GE

MAJORICA…

SER

GE

LUTE

NS

Lau

ra M

erci

er

Brand awareness (%)

2014 2016 2019

1813

1299

55

433

3222221

111000000000

L'OrealShiseido

Estee LauderAmorepacific

P&GLGHH

ChandoChicmaxPechoin

LVMHKOSE

UnileverKao

JahwaYujiahuiInoherb

BeiersdorfProya

J&JChanel

FanclAvon

Nu SkinPola Orbis

Artistry (Amway)Mary Kay

L’occitaneRohto

Elizabeth Arden…

2019 Survey: Face Care Brand Share By Company

53

22

11

00

00

-1-1-1-1-1-1-1-1

-2-2

-2-3

-4-4

ShiseidoAmorepacific

LGHHP&G

LVMHUnilever

KaoFancl

Nu SkinL'Oreal

Pola OrbisL’occitane

KOSEAvon

Estee LauderArtistry (Amway)

RohtoChanel

BeiersdorfProya

Mary KayJahwa

J&JInoherb

Face Care Brand Share By Company: 2019 vs. 2016

Source: AlphaWise, Morgan Stanley Research Source: AlphaWise, Morgan Stanley Research


Brand awareness picked up across the brand portfolio Strong company market share, especially in skin care



40


September 12th

Shiseido (4911.T, EW, PT JPY8,000)

e=Morgan Stanley Research ests;


Shiseido’s exposure to Chinese consumer: Onshore

China business should become the largest growth driver

Onshore China business sales breakdown:

We expect the premium brands to continue driving the

robust growth in China

SHISEIDO

Aupres

Cle de Peau BeauteANESSA

IPSASENKA

ELIXIR

NARS

Other brands

Morgan Stanley Research ests; Source: Company data, Morgan Stanley Research

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

20

15

20

16

20

17

20

18

20

19

e

20

20

e

20

21

e

20

22

e

20

23

e

% of total salesSales (bn JPY)

Mainland China/HKbusiness

Travel retail channel(ex-Japan)

Japan inbounddemand

Chinese demandexposure

Chinese demand as a% of total sales

-5%

0%

5%

10%

15%

20%

25%

30%

35%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

15

AD

J

20

16

20

16

AD

J

20

17

20

18

20

19

e

20

20

e

20

21

e

20

22

e

20

23

e

Sales growth Y/Y%China sales, Mn CNY

Hong Kong (separate until2016)

Prestige (SHISEIDO, Cle dePeau Beaute)

Cosmetics (Urara, Za,Pure&Mild)

Personal care(Tsubaki/Senka, etc)

Beijing (Aupres)

Y/Y% Growth (local FX)

Onshore China sales breakdown

e=Morgan Stanley Research ests;




41


September 12th

KOSE (4922.T, EW, PT JPY18,500)

Domestic high-prestige

Domestic prestige

Tarte

Local China subsidiary business

South Korea

Taiwan/Other

Cosmetary

Other

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

2016 2017 2018 2019e 2020e 2021e 2022e 2023e

(bn JPY)Japan DFS

Korea travel retail

Japan inbound sales

Local China

Chinese demand as a % of total sales

Morgan Stanley Research estimates; Source: Company Data, Morgan Stanley Research

While the onshore China business is still a small

piece of Kose’s sales portfolio...

…the total exposure to Chinese consumer demand is as

large as ~15-20% today

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2016 2017 2018 2019e 2020e 2021e 2022e 2023e

(Mn RMB)Albion (accounted separately from Kose's China subsidiary sales)

Other Kose brands

Decorte

Sekkisei

Kose’s local China sales outlook:

We forecast sales CAGR of +40% p.a.

All figures are Morgan Stanley Research estimates; Source: Company Data, Morgan Stanley Research

e=Morgan Stanley Research estimates; Source: Company Data, Morgan Stanley Research



42


September 12th

KOSE (4922.T, EW, PT JPY18,500)

Growing number of KOSE brands are starting to command

higher/solid brand awareness today; absolute levels,

however, are still lower global competitors

While user share remains relatively low, trial intent

is high


0

10

20

30

40

50

60

70

80

90

100

Sekk

ise

i

MY

V S

EKK

ISEI

MY

V

Dec

ort

é

Cle

arTu

rn

Alb

ion

Pre

dia

INFI

NIT

Y

Vis

ee

On

e b

y K

ose

FASI

O

Jill

Stu

art

AD

DIC

TIO

N

Soft

imo

Brand awareness (%)

2016 2019

L'OrealShiseido

Estee Lauder

Amorepacific

P&G

Chicmax

Kao

LVMH

LGHH

Chando

Pechoin

KOSE

Unilever

Jahwa

J&JYujiahui

Inoherb

Chanel

Beiersdorf

Proya

Rohto

Pola Orbis

L’occitane

Fancl

-50%

0%

50%

100%

150%

200%

250%

0 5 10 15 20 25 30 35 40 45 50

Po

ten

tia

l u

se

r g

row

th (

fac

e c

are

)

Current usage rate (face care)

2019 Survey: Face Care Current Usage Vs. Growth Potential




43


September 12th

China Mass Beauty Market

Domestic brands are winning customers in the mass segment: According to our AlphaWise survey, the use of local brands in the mass segment rose from 33% in 2016 to 48% in 2019.

We think the improvement is primarily driven by:

1) the improving product quality of domestic brands with increasing R&D spending and

2) an effective marketing strategy in e-commerce and H&B channels.

Domestic brands have achieved a 14% sales CAGR, while foreign brands have only risen at a 3% CAGR in 2014-18. Domestic brands accounted for 64% of sales in the mass segment in 2018, up from 58% in 2014.

67%

52%

100%

100%

100%

100%

100%

100%

33%

48%

2016

2019

2016

2019

2016

2019

2016

2019

Up to R

MB

249

RM

B 2

50-

499

RM

B 5

00-

999

RM

B 1

00

0o

r m

ore

Face Care Most Often Used Brand Origin: 2019 vs. 2016

Foreign brands Local brands

20%

33%

29%

27%24%

20% 20%

12%14%

11%

11% 9%

13%

6% 8%4%

2%

-2%

3%

8%0%

10%

20%

30%

40%

0

20,000

40,000

60,000

80,000

100,000

120,000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Sa

les

Va

lue

(Rm

b m

n)

China - Mass Beauty Products Market (ex Others & Private Labels)

Aggregate Foreign Brands Sales (LHS) Aggregate Domestic Brand Sales (LHS)Domestic Brands Growth (RHS) Foreign Brands Growth (RHS)

Note: Our sample is composed of 77 color cosmetics brands and 123 skin care brands. For those identified brands we have classified them into domestic brands.




44


September 12th

16%23%30%36%44%51%

58%63%

31%40%40%47%46%54%84%77%70%64%

56%

49%

42%37%

69%60%60%53%54%46%

-14%-10%

0%

17%16%13% 11% 10%

24%

14%17%

41%

27%32%

60%54%52%

38%

58%61%

48%58%

10%

30%

50%

70%

0

1,000

2,000

3,000

4,000

5,000

6,000

2014

2015

2016

2017

2018

2019e

2020e

2021e

1H

17

2H

17

1H

18

2H

18

1H

19

2H

19e

(Rm

b m

n)

Proya Sales MixOffline Online Offline yoy growth (RHS) Online yoy growth (RHS)

0.7%

1.1%

1.6%

2.2%

2.7%2.9%

2.6%

2.4% 2.3%

2.6%

3.2%

4.0%

4.7%

0%

1%

1%

2%

2%

3%

3%

4%

4%

5%

5%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019e

2020e

2021e

Re

tail

Va

lue

(R

mb

mn

)

Proya - Market Share of China's Mass Beauty Products MarketRetail Sales Value (LHS) Company Share (RHS)

Proya (603605.SS, OW, PT of Rmb89.0)

We expect Proya to benefit from optimal positioning in the mass market. Benefiting from its strong growth in e-commerce and stable growth in health & beauty stores, Proya saw its value share in China's mass beauty market catapult from 0.7% in 2009 to 2.6% in 2018. We forecast its market share in China's onshore mass market will further increase, to 4.7% by 2021, driven by rising income of lower tier customers and the continued strength of its e-commerce business.


31

69

89

2014 2016 2019

% Having Purchased Beauty Products Online In P12M

13% 13% 14% 15% 15% 16% 16% 17% 19% 20% 20% 21% 21% 21% 21% 21% 3%

7%12%

15%17%

20%22%

24%

27%

50% 48% 45% 44%44%

43% 43%42%

37%32%

31%29%

28%27%

27%

26%

16%16%

20%23%

24%24%

24%22%

19%19%

18%

16%15%

14%

13%

12%

21%22%

20%17%

16%16%

16%

16%

17%

17%

16%

17%

16%

15%

14%

13%

40,427 48,582

56,939 65,688

78,380

90,936 102,413

115,301

131,615

145,054

159,538

173,320

185,793

197,632

221,857

254,985

-

50,000

100,000

150,000

200,000

250,000

300,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

(Rmb mn)China - Beauty Market

Others

Modern Trade

Department Stores

E-commerce

Health and Beauty Stores




September 12th

EMEA



46


September 12th

L'Oreal (OREP.PA, EW, PT EUR 235.0)

Top 5 Brands

1. L'Oréal Paris

2. Lancome

3. Maybelline

4. Yves Saint Laurent

5. Kiehl's

Source: Morgan Stanley Research

Key Estimates

Source: Company Data, Morgan Stanley Research; e=Morgan Stanley Research estimates

China has been a major growth

engine for L’Oreal in recent years

L'Oreal manages 21 brands

across their portfolio in China

One of our key findings from the survey is that big

brands are getting bigger in China. We have also

modelled L’Oreal sales in China in the next few

years and expect the company to continue its

double-digit organic growth for the next 3 years, and

gradually normalize over this period of time.

Lancome has become the largest brand in China in

luxury.



47


September 12th

L'Oreal (OREP.PA, EW, PT EUR 235.0)

L’Oreal in China is the number one brand in

each segment it operates

We expect its growth in China to significantly

outpace group growth

The premium skew of the Chinese portfolio is

set to benefit from ongoing premiumization

Source: Company Data, Morgan Stanley Research; e=Morgan Stanley Research estimates

(L’Oreal)

L’Oreal is the #1 player online in both mass and

premium



48


September 12th

Further Growth Opportunities

Travel retail has been a major growth

driver in China The rise of e-commerce

Online has significantly outperformed offline channels in the past ten years


Cross border makes up for nearly a third of total beauty purchases of our respondents


Europe is the second most popular country for beauty shopping amongst Chinese consumers according to our survey


We expect e-commerce to significantly outpace offline channels

(L’Oreal)




49


September 12th

Takeaways from the AlphaWise Survey - 1


- Continued improvement of Chinese households' financial

situation and the rise of the upper-middle class

- The lipstick effect

L’Oreal has the highest current and potential usage

in both face care and makeup

High potential despite highest current

usage amongst peers

Face Care Usage By Company (2019 Survey)

Makeup Usage By Company (2019 Survey)

Further premiumization to benefit

Western prestige brands

32% of respondents intend to trade up their face care, and 35% their makeup

The premium beauty market in China remains dominated by Western brands, especially in skin care

Western brands makeup 70% of the selective skin care segment in China

Source: L’Oreal Capital Markets Day 2018 Presentation



50


September 12th

Takeaways from the AlphaWise Survey - 2


L'Oreal's leadership in digital to be

rewarded

Increasing number of steps to sustain

volumes

Social media reviews are the main reason why

respondents switch makeup and fragrance brands

Reasons For Make-Up Users Switching Brands (2019 Survey)

Reasons For Fragrance Users Switching Brands (2019 Survey)

Skin Care Usage Frequency has Gone Up

…As has Makeup Usage Frequency

Trend such as K-beauty has increased the number of

steps, hence the variety of products, that are thought to

be necessary within the skin-care regimen




September 12th

North America



52


September 12th

Estée Lauder (EL, OW, PT of $215)


EL Continues to Pivot to Higher-Growth, Higher-Margin

Channels

Topline Remains Strong, and We Forecast Continued

Topline Momentum Above Market Expectations

Favorable Channel Mix Drives Much Higher LT Topline

Growth, and Outsized Margin Expansion vs HPC Peers

The Midpoint of EL’s Q1 Guidance Implies a Significant

Slowdown in the Balance of the Year

EL FY19 LT Growth

Sales Mix Growth Contribution

Growth Areas

Travel Retail 23% 10.0% 2.3%

Online 15% 20.0% 3.0%

Base Emerging Markets 14% 18.5% 2.5%

Specialty 9% 8.0% 0.7%

Growth Areas Sub-total 60% 14.1% 8.5%

Rest of EL Business* 40% -1.0% -0.4%

Total Sales 100% 8.0% 8.0%

EL FY19 LT Growth Est.

Profit Mix Growth Contribution Margin

Growth Areas

Travel Retail 37% 10.0% 3.7% 28.1%

Online 24% 20.0% 4.8% 28.1%

Base Emerging Markets 14% 18.5% 2.5% 17.5%

Specialty 9% 8.0% 0.7% 17.5%

Growth Areas Sub-total 83% 14.0% 11.6% 24.2%

Rest of EL Business* 17% -1.0% -0.2% 7.5%

Total 100% 11.5% 11.5% 17.5%

9.2%

11.6%

12.8%11.9%

11.3% 11.1%

12.3% 12.0%

~8%

~7%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 MS LTEstimate

LT MarketEstimate

EL Organic Sales Growth

5.5%

7.9%

8.9%9.6%

10.3%

11.4%

12.6%11.9%

9.5%

6.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

1Q

18

2Q

18

3Q

18

4Q

18

1Q

19

2Q

19

3Q

19

4Q

19

1Q

20

e

Ba

lan

ce o

f F

Y20

e

EL Organic Sales GrowthY-o-Y 2-Year Avg

26%40%

76%83%

74%60%

24%17%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

FY08 FY15 FY18 FY19

EL Profit by Channel

Other Channels Attractive channels (Travel Retail, Online, EMs, Specialty)



53


September 12th

Estée Lauder (EL, OW, PT of $215)

We believe EL will benefit from continued premiumization and channel shift. China accounted for ~9% of EL sales in FY18, tripling vs ~3% in 2008, according to Euromonitor, with Chinese travelers adding another HSD% of sales mix in travel retail out of country. We have adjusted upward our forecast growth rates for EL's Asia Pacific segment, on the back of favorable AlphaWise survey results that we think imply the market underestimates the sustainability of China growth for EL.


1. Continued Premiumization

2. Strong Travel Retail Growth

3. Increasing Brand Loyalty

4. Social Media Proliferation

81% 79%75%

67%

58% 56% 53% 51% 49%45%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

% of Consumers Who Will Continue Buying Their Currently Used Skin Care Brands in the N12M

Takeaways Are More Favorable for EL Than the Category

Nearly Half of EL Skin Care Consumers Expect to Buy More

Expensive Products or Brands

79% of EL Skin Care Consumers Anticipate Returning as a

Customer

Estée Lauder Has the Highest Repurchase Intention of the

Top 20 Most Popular Brands



54


September 12th

Disclosures

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For important disclosures, stock price charts and equity rating histories regarding companies that are the subject of this report, please see the Morgan Stanley Research Disclosure

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The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed and that they have not received and will

not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report: Edouard Aubin; Kelly H Kim, CFA; Haruka Miyake; Dara

Mohsenian, CFA; Daniel S. Oh; Richard Taylor; Dustin Wei.

Unless otherwise stated, the individuals listed on the cover page of this report are research analysts.

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Important US Regulatory Disclosures on Subject Companies

As of August 30, 2019, Morgan Stanley beneficially owned 1% or more of a class of common equity securities of the following companies covered in Morgan Stanley Research: Adidas,

Burberry, China Mengniu Dairy, China Resources Beer Holdings Co Ltd, Church & Dwight Co., Inc., Clorox Co, Dufry AG, E-mart, elf Beauty, Estee Lauder Companies Inc, Foshan

Haitian Flavouring and Food, Haidilao International Holding Ltd, Hermes International S.C.A., Hotel Shilla, Hugo Boss AG, LG Household & Health Care, Li Ning, Luckin Coffee Inc,

Moncler SpA, Pandora A/S, Reckitt Benckiser, Shanghai Jahwa United Co. Ltd., Shenzhou International Group Holdings, Swatch, Tsingtao Brewery Co Ltd, Unilever NV, Unilever PLC,

Viomi Technology Co Ltd, Yanghe Brewery.

Within the last 12 months, Morgan Stanley managed or co-managed a public offering (or 144A offering) of securities of Bestway Global Holding Inc, COFCO Meat Holdings Ltd, Crystal

International Group Ltd., Honma Golf Limited, Kimberly-Clark Corp, Luckin Coffee Inc, Unilever NV, Unilever PLC, Viomi Technology Co Ltd.

Within the last 12 months, Morgan Stanley has received compensation for investment banking services from Bestway Global Holding Inc, CJ Cheil Jedang Corp, Colgate-Palmolive Co,

Crystal International Group Ltd., Dufry AG, Kimberly-Clark Corp, Luckin Coffee Inc, LVMH Moet Hennessy Louis Vuitton SA, Procter & Gamble Co., Samsonite International, Unilever NV,

Unilever PLC, Viomi Technology Co Ltd, Yili Industrial, Zhou Hei Ya International Holdings.



55


September 12th

Disclosures (cont’d)

In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from Adidas, ANTA Sports Products, Beiersdorf AG, Bestway

Global Holding Inc, Burberry, China Agri-Industries, China Mengniu Dairy, Church & Dwight Co., Inc., CJ Cheil Jedang Corp, Clorox Co, COFCO Meat Holdings Ltd, Colgate-Palmolive

Co, Coty Inc, Crystal International Group Ltd., Dufry AG, Edgewell Personal Care, elf Beauty, Energizer Holdings Inc., EssilorLuxottica SA, Essity AB, Estee Lauder Companies Inc,

Goodbaby International Holdings, GrandVision NV, Gree Electric Appliances Inc of Zhuhai, Hengan International Group, Henkel AG & Co. KGaA, Hermes International S.C.A., Hugo Boss

AG, Hyundai Department Store, Joyoung Co Ltd, Kao, Kering, Kimberly-Clark Corp, KOSE, Kweichow Moutai Company Ltd., L'Oreal S.A, LG Household & Health Care, Lotte Shopping,

Luckin Coffee Inc, LVMH Moet Hennessy Louis Vuitton SA, Midea Group Co Ltd., Moncler SpA, Newell Rubbermaid Inc., Pacific Textiles Holdings Limited, Pandora A/S, Procter &

Gamble Co., Reckitt Benckiser, Regina Miracle International (Holdings), Richemont SA, Salvatore Ferragamo SpA, Samsonite International, Shinsegae, Shiseido, Sun Art Retail Group

Limited, Tingyi (Cayman Islands), Uni-President China, Unicharm, Unilever NV, Unilever PLC, Viomi Technology Co Ltd, Want Want China Holdings Ltd, WH Group, Yili Industrial,

Yonghui Superstores, Yue Yuen Industrial Hldg, Zhou Hei Ya International Holdings.

Within the last 12 months, Morgan Stanley has received compensation for products and services other than investment banking services from Adidas, ANTA Sports Products, Beiersdorf

AG, China Foods Limited, Church & Dwight Co., Inc., Clorox Co, Colgate-Palmolive Co, Coty Inc, Dufry AG, Edgewell Personal Care, elf Beauty, EssilorLuxottica SA, Goodbaby

International Holdings, Gree Electric Appliances Inc of Zhuhai, Henkel AG & Co. KGaA, Honma Golf Limited, Kering, Kimberly-Clark Corp, LVMH Moet Hennessy Louis Vuitton SA, Midea

Group Co Ltd., Moncler SpA, Newell Rubbermaid Inc., Ontex Group NV, Pacific Textiles Holdings Limited, Procter & Gamble Co., Reckitt Benckiser, Regina Miracle International

(Holdings), Samsonite International, Uni-President China, Unilever NV, Unilever PLC, WH Group, Yanjing Brewery, Yue Yuen Industrial Hldg, Yum China Holdings Inc..

Within the last 12 months, Morgan Stanley has provided or is providing investment banking services to, or has an investment banking client relationship with, the following company:

Adidas, ANTA Sports Products, Beiersdorf AG, Bestway Global Holding Inc, Burberry, China Agri-Industries, China Mengniu Dairy, Church & Dwight Co., Inc., CJ Cheil Jedang Corp,

Clorox Co, COFCO Meat Holdings Ltd, Colgate-Palmolive Co, Coty Inc, Crystal International Group Ltd., Dufry AG, Edgewell Personal Care, elf Beauty, Energizer Holdings Inc.,

EssilorLuxottica SA, Essity AB, Estee Lauder Companies Inc, Goodbaby International Holdings, GrandVision NV, Gree Electric Appliances Inc of Zhuhai, Hengan International Group,

Henkel AG & Co. KGaA, Hermes International S.C.A., Honma Golf Limited, Hugo Boss AG, Hyundai Department Store, Joyoung Co Ltd, Kao, Kering, Kimberly-Clark Corp, KOSE,

Kweichow Moutai Company Ltd., L'Oreal S.A, LG Household & Health Care, Lotte Shopping, Luckin Coffee Inc, LVMH Moet Hennessy Louis Vuitton SA, Midea Group Co Ltd., Moncler

SpA, Newell Rubbermaid Inc., Pacific Textiles Holdings Limited, Pandora A/S, Procter & Gamble Co., Reckitt Benckiser, Regina Miracle International (Holdings), Richemont SA, Salvatore

Ferragamo SpA, Samsonite International, Shinsegae, Shiseido, Sun Art Retail Group Limited, Tingyi (Cayman Islands), Uni-President China, Unicharm, Unilever NV, Unilever PLC, Viomi

Technology Co Ltd, Want Want China Holdings Ltd, WH Group, Yili Industrial, Yonghui Superstores, Yue Yuen Industrial Hldg, Zhou Hei Ya International Holdings.

Within the last 12 months, Morgan Stanley has either provided or is providing non-investment banking, securities-related services to and/or in the past has entered into an agreement to

provide services or has a client relationship with the following company: Adidas, ANTA Sports Products, Beiersdorf AG, Burberry, China Foods Limited, Church & Dwight Co., Inc., Clorox

Co, Colgate-Palmolive Co, Coty Inc, Dufry AG, Edgewell Personal Care, elf Beauty, EssilorLuxottica SA, Goodbaby International Holdings, Gree Electric Appliances Inc of Zhuhai, Henkel

AG & Co. KGaA, Honma Golf Limited, Kao, Kering, Kimberly-Clark Corp, LVMH Moet Hennessy Louis Vuitton SA, Midea Group Co Ltd., Moncler SpA, Newell Rubbermaid Inc., Ontex

Group NV, Pacific Textiles Holdings Limited, Procter & Gamble Co., Reckitt Benckiser, Regina Miracle International (Holdings), Samsonite International, Uni-President China, Unilever

NV, Unilever PLC, WH Group, Yanjing Brewery, Yue Yuen Industrial Hldg, Yum China Holdings Inc..

An employee, director or consultant of Morgan Stanley is a director of Estee Lauder Companies Inc, Hengan International Group. This person is not a research analyst or a member of a

research analyst's household.

Morgan Stanley & Co. LLC makes a market in the securities of Church & Dwight Co., Inc., Clorox Co, Colgate-Palmolive Co, Coty Inc, Edgewell Personal Care, Energizer Holdings Inc.,

Estee Lauder Companies Inc, Kimberly-Clark Corp, Newell Rubbermaid Inc., Procter & Gamble Co., Unilever NV, Unilever PLC, Viomi Technology Co Ltd.

Morgan Stanley & Co. International plc is a corporate broker to Burberry, Reckitt Benckiser.

The equity research analysts or strategists principally responsible for the preparation of Morgan Stanley Research have received compensation based upon various factors, including

quality of research, investor client feedback, stock picking, competitive factors, firm revenues and overall investment banking revenues. Equity Research analysts' or strategists'

compensation is not linked to investment banking or capital markets transactions performed by Morgan Stanley or the profitability or revenues of particular trading desks.



56


September 12th


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STOCK RATINGS

Morgan Stanley uses a relative rating system using terms such as Overweight, Equal-weight, Not-Rated or Underweight (see definitions below). Morgan Stanley does not assign ratings of

Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not the equivalent of buy, hold and sell. Investors should carefully read the definitions

of all ratings used in Morgan Stanley Research. In addition, since Morgan Stanley Research contains more complete information concerning the analyst's views, investors should carefully

read Morgan Stanley Research, in its entirety, and not infer the contents from the rating alone. In any case, ratings (or research) should not be used or relied upon as investment advice.

An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations.

Global Stock Ratings Distribution

(as of August 31, 2019)

The Stock Ratings described below apply to Morgan Stanley's Fundamental Equity Research and do not apply to Debt Research produced by the Firm.

For disclosure purposes only (in accordance with NASD and NYSE requirements), we include the category headings of Buy, Hold, and Sell alongside our ratings of Overweight, Equal-

weight, Not-Rated and Underweight. Morgan Stanley does not assign ratings of Buy, Hold or Sell to the stocks we cover. Overweight, Equal-weight, Not-Rated and Underweight are not

the equivalent of buy, hold, and sell but represent recommended relative weightings (see definitions below). To satisfy regulatory requirements, we correspond Overweight, our most

positive stock rating, with a buy recommendation; we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively.

Data include common stock and ADRs currently assigned ratings. Investment Banking Clients are companies from whom Morgan Stanley received investment banking compensation in

the last 12 months. Due to rounding off of decimals, the percentages provided in the "% of total" column may not add up to exactly 100 percent.



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Analyst Stock Ratings

Overweight (O or Over) - The stock's total return is expected to exceed the total return of the relevant country MSCI Index or the average total return of the analyst's industry (or industry

team's) coverage universe, on a risk-adjusted basis over the next 12-18 months.

Equal-weight (E or Equal) - The stock's total return is expected to be in line with the total return of the relevant country MSCI Index or the average total return of the analyst's industry (or

industry team's) coverage universe, on a risk-adjusted basis over the next 12-18 months.

Not-Rated (NR) - Currently the analyst does not have adequate conviction about the stock's total return relative to the relevant country MSCI Index or the average total return of the

analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.

Underweight (U or Under) - The stock's total return is expected to be below the total return of the relevant country MSCI Index or the average total return of the analyst's industry (or

industry team's) coverage universe, on a risk-adjusted basis, over the next 12-18 months.

Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months.

Analyst Industry Views

Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be attractive vs. the relevant broad market benchmark, as

indicated below.

In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be in line with the relevant broad market benchmark, as indicated

below.

Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant broad market benchmark, as indicated

below.

Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index; Europe - MSCI Europe; Japan - TOPIX;

Asia - relevant MSCI country index or MSCI sub-regional index or MSCI AC Asia Pacific ex Japan Index.



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Important Disclosures for Morgan Stanley Smith Barney LLC Customers

Important disclosures regarding the relationship between the companies that are the subject of Morgan Stanley Research and Morgan Stanley Smith Barney LLC or Morgan Stanley or

any of their affiliates, are available on the Morgan Stanley Wealth Management disclosure website at www.morganstanley.com/online/researchdisclosures. For Morgan Stanley specific

disclosures, you may refer to www.morganstanley.com/researchdisclosures.

Each Morgan Stanley Equity Research report is reviewed and approved on behalf of Morgan Stanley Smith Barney LLC. This review and approval is conducted by the same person who

reviews the Equity Research report on behalf of Morgan Stanley. This could create a conflict of interest.

Other Important Disclosures

Morgan Stanley & Co. International PLC and its affiliates have a significant financial interest in the debt securities of Adidas, Church & Dwight Co., Inc., Clorox Co, Colgate-Palmolive Co,

Coty Inc, Henkel AG & Co. KGaA, Kering, Kimberly-Clark Corp, LVMH Moet Hennessy Louis Vuitton SA, Newell Rubbermaid Inc., Procter & Gamble Co., Reckitt Benckiser, Unicharm,

Unilever NV, Unilever PLC.

Morgan Stanley Research policy is to update research reports as and when the Research Analyst and Research Management deem appropriate, based on developments with the issuer,

the sector, or the market that may have a material impact on the research views or opinions stated therein. In addition, certain Research publications are intended to be updated on a

regular periodic basis (weekly/monthly/quarterly/annual) and will ordinarily be updated with that frequency, unless the Research Analyst and Research Management determine that a

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Morgan Stanley produces an equity research product called a "Tactical Idea." Views contained in a "Tactical Idea" on a particular stock may be contrary to the recommendations or views

expressed in research on the same stock. This may be the result of differing time horizons, methodologies, market events, or other factors. For all research available on a particular stock,

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those who receive it. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial

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Stanley Research may not be suitable for all investors, and certain investors may not be eligible to purchase or participate in some or all of them. Morgan Stanley Research is not an offer

to buy or sell or the solicitation of an offer to buy or sell any security/instrument or to participate in any particular trading strategy. The value of and income from your investments may vary

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future performance. Estimates of future performance are based on assumptions that may not be realized. If provided, and unless otherwise stated, the closing price on the cover page is

that of the primary exchange for the subject company's securities/instruments.



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The fixed income research analysts, strategists or economists principally responsible for the preparation of Morgan Stanley Research have received compensation based upon various

factors, including quality, accuracy and value of research, firm profitability or revenues (which include fixed income trading and capital markets profitability or revenues), client feedback

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information known to, professionals in other Morgan Stanley business areas, including investment banking personnel.

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unless pre-approved by authorized members of Research management.

Morgan Stanley may make investment decisions that are inconsistent with the recommendations or views in this report.

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in Canada by Morgan Stanley Canada Limited, which has approved of and takes responsibility for its contents in Canada; in Germany and the European Economic Area where required

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Indicators and trackers referenced in Morgan Stanley Research may not be used as, or treated as, a benchmark under Regulation EU 2016/1011, or any other similar framework.



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